Tuesday, January 20, 2009

Once Again, Rolling Stone Hits it Out of the Park

In a recent issue of Rolling Stone, they published this article from economist Paul Krugman. Even if you aren't knowledgeable or interested in economics, it has a lot of sound advice. I'd like to comment on a couple points.

- Unemployment. So why does full employment occur when the unemployment rate is 5%? You'd think it would be 0%, right? Think about what 0% would mean. There are no new jobs or people to fill them because everyone would have their own job. So, that's why 5% is full employment - there has to be some flow and wiggle room to allow for advancement and growth in the population. Also, unemployment is only a measure of people collecting benefits and looking for work. If unemployment goes down, it doesn't necessarily mean that a bunch of people found jobs. It could mean that a bunch of people just gave up.

-1980's Fed maneuvers. Yes, the cash injection helped the US back in the 80's. But this is the problem with a lot of economic thought/policy. We are not an island economically. There is an entire global market out there. You know what our policies in the 80's did to Latin America? Drove countries bankrupt, devalued their currency and effed them over. So, whatever we do now to fix our economy, we have to be mindful of the global effect.

- Don't confuse nation economics with household economics. As a breadwinner and head of household, all we focus on is reducing debt, savings, and having cash leftover each month. That is our personal tunnel vision - cash flow. Our country is not our household. Our country is more like a bank (ironic I know). Taking on debt isn't the end of the world as long as it can be pumped into something that is an asset or can pay back. The US has taken on debt to pay for wars and bail out banks in the past 8 years. Are those assets? Banks should be... Sometimes, taxing and spending is the only thing a government can do to dig the country out of a hole.

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